Thursday, February 14, 2013

Choices for Deficit Reduction

http://www.cbo.gov/publication/43692

This report reviews the magnitude and causes of the federal government’s budgetary imbalance, various options for bringing spending and taxes into closer alignment, and criteria that lawmakers and the public might use to evaluate different approaches to deficit reduction.

How Big Are Projected U.S. Deficits and Debt?

Federal debt held by the public currently exceeds 70 percent of the nation’s annual output (gross domestic product, or GDP), a percentage not seen since 1950. Under the current-law assumptions embodied in CBO’s baseline projections, the budget deficit would shrink markedly—from nearly $1.1 trillion in fiscal year 2012 to about $200 billion in 2022—and debt would decline to 58 percent of GDP in 2022. However, those projections depend heavily on the significant increases in taxes and decreases in spending that are scheduled to take effect at the beginning of January.
If, instead, lawmakers maintained current policies by preventing most of those changes from occurring—what CBO refers to as the alternative fiscal scenario—annual deficits would average nearly 5 percent of GDP over the next decade, and debt held by the public would increase to 90 percent of GDP 10 years from now and keep rising rapidly thereafter.

What Factors Are Putting Increasing Pressure on the Budget?

The aging of the baby-boom generation portends a significant and sustained increase in coming years in the share of the population that will receive benefits from Social Security and Medicare and long-term care services financed through Medicaid. Moreover, per capita spending on health care is likely to continue to grow faster than per capita spending on other goods and services for many years. Without significant changes in the laws governing Social Security, Medicare, and Medicaid, those factors will boost federal outlays as a percentage of GDP well above the average of the past four decades—a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions, and health care costs (see figure below).



What Are the Consequences of Rising Federal Debt?

Prolonged increases in debt relative to GDP can cause significant long-term damage to both the government’s finances and the broader economy. Such increases in federal debt would have the following consequences:
  • Higher federal spending on interest payments;
  • A reduction in national saving;
  • Limits on policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns, natural disasters, or financial crises; and
  • An increase in the likelihood of a fiscal crisis, in which investors would lose confidence in the government’s ability to manage its budget, and the government would thus lose the ability to borrow at affordable interest rates.

What Are Some Possible Targets for Deficit Reduction?

Making policy changes that are large enough to shrink the debt relative to the size of the economy—or even to keep the debt from growing—will be a formidable task. For simplicity, this report focuses on potential deficit reduction in one year: 2020. It concentrates on CBO’s alternative fiscal scenario, rather than on the current-law baseline, to show the size of the policy changes—relative to policies now in place—that would be necessary to put the budget on a more sustainable path.
Lawmakers could set various deficit reduction goals for 2020, such as the following:
Approximate Amount
of Deficit Reduction in 2020
(Relative to the alternative fiscal
scenario and excluding interest savings)





    Impact on Budgetary Outcomes
 
$1 TrillionThe budget would be balanced by 2020;
debt would be on a steadily declining path relative to GDP.
$750 BillionDeficts would be similar to those projected in the current-law baseline
(equaling a small percentage of GDP each year), and debt would be on a
 slightly downward-sloping path relative to GDP.
$500 BillionDebt would be about the same percentage of GDP at the end of 2020
that it will be early in 2013 under the alternative fiscal scenario
(about 75 percent).


What Kinds of Policy Changes Could Lead to a More Sustainable Budgetary Path?

The report lists a number of options, mostly taken from previous CBO publications, that illustrate how challenging it would be to shrink the deficit in 2020 by any of the amounts shown above, relative to the shortfalls projected under current policies. The options—some of which would increase revenues and others of which would reduce spending—are meant to be illustrative only; many other possible policy changes could be considered.
Very few of the policy changes that CBO has examined in the past are large enough, by themselves, to accomplish a sizable portion of the deficit reduction necessary to put the budget on a more sustainable path. In addition, many of the options that would have a substantial budgetary impact would require large numbers of people to pay more in taxes or receive less in government benefits or services.
For example, it is possible to keep tax revenues at their historical average percentage of GDP—but only by making substantial cuts, relative to current policies, in the large benefit programs that aid a broad group of people at some point in their lives. Alternatively, it is possible to keep the policies for those large benefit programs unchanged—but only by raising taxes substantially, relative to current policies, for a broad segment of the population. Changes in other federal programs can affect the size of the changes needed in taxes or large benefit programs, but they cannot eliminate the basic trade-off between those two parts of the budget. Ultimately, significant deficit reduction is likely to require a combination of policies, many of which may stand in stark contrast to policies now in place.

What Criteria Might Be Used to Evaluate Policy Changes?

In considering policy changes that would reduce budget deficits, lawmakers and the public may weigh several factors. The types of changes that people will be willing to accept will depend in part on their view of the proper size of the federal government and the best allocation of its resources. People may also want to consider the distributional implications of proposed changes—that is, who would bear the burden of particular cuts in spending or increases in taxes and who would realize any long-term economic benefits. In addition, some policy changes would have a large and immediate impact on the budget, whereas others would have effects that would grow considerably over time.
A related consideration is how policy changes would influence the pace of economic recovery and longer-term economic performance. Lawmakers face difficult trade-offs in deciding how quickly to implement policies to reduce budget deficits. For example, CBO projects that the significant tax increases and spending cuts that are due to occur in January will probably cause the economy to fall back into a recession next year, but they will make the economy stronger later in the decade and beyond. In contrast, continuing current policies would lead to faster economic growth in the near term but a weaker economy in later years. Potential policy changes would have different effects on federal borrowing, people’s incentives to work and save, and government investment, all of which would affect the nation’s output and income during the next few years and over the longer term.
Updated November 9, 2012, to correct errors in the placement and wording of footnotes in table 4.

61 comments:

  1. TD, I get it. I think everyone gets it, despite strong beliefs that liberals don't. The world that actually exists is vastly different from the world everyone would like to see. The discussions for solutions, however, do not start from the world that actually exists. I can understand that being conservative or liberal makes this appear simple, but it is not. Ronald Reagan set us on the path that lead to where we are today, every president since him has continue to double down on the magical thinking that we can keep spending more then we take in, keep growing our military, keep growing social programs and keep cutting taxes and regulations while waging an endless campaign of indicting the government as the root of every evil.

    On quite a few things TD, I actually agree with you, likely on more then you think. Where I don't agree with you is in believing that brutal cynicism and scapegoating can accomplish something useful. What you and I or anyone else would like to see is irrelevant, at least until such point where Americans are actually ready to stop the petty bitch fests and accept the world as it is without defending to the death a need to blame one group as the source of everything wrong.

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    1. Hi, Max.

      There might be a difference one getting it and being willing to support actions, yes? And I'm not sure as many people really get it, liberals OR conservatives, as you think.

      We can dance around the spending problem (eensy-weensy's fool comment notwithstanding) all day long, but I'm inclined for the simple approach: reduce X percent from the amount spent on everything from the previous year. No accounting for inflation or anything else. What is X? Let's shoot for 0.5% per year. How much less painful could it get?

      Jean

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    2. "On its current path, the U.S. federal government is turning into, in the journalist Ezra Klein's memorable image, an insurance company with an army. And even the army will have to shrink soon."

      "The continued growth in entitlements is set to crowd out all other government spending, including on defense and the investments needed to help spur the next wave of economic growth. In 1960, entitlement programs amounted to well under one-third of the federal budget, with all the other functions of government taking up the remaining two-thirds. By 2010, things had flipped, with entitlement programs accounting for two-thirds of the budget and everything else crammed into one-third."

      http://www.hannaharendtcenter.org/?tag=ezra-klein

      1773-2009

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  2. Twinsdad,

    Sobering reading. Not surprising, tho.

    A small thing, but one that continues to irritate me when I think about it, is the refusal to consider gradual phaseout of Social Security. How gradual? 30 years? 40 years? That span should be enough to ensure people who've had money taken out will get what was promised. It depends on how the details would work out, which involves demographics. I ran a simple spreadsheet comparison one or two years ago, comparing the results of a very simple redirection of the 6.2% portion of FICA into a market index fund, and the results were a bit surprising to me, in a good way. I just wish it could pique the lawmakers' interest. But then, it means that even though many of those lawmakers would be buried by the time the plan was completed, they would still have to embrace the notion that our wonderful 536 would gradually no longer be able to get their grubbies on other people's money.

    Jean

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    1. Your irritation Jean, is kind of my point. For many people, perhaps not yourself, is in insatiable irritation that they be forced to participate in something they don't control. Social Security is NOT meant to be a retirement plan, it's really more of a forced savings. We've already phased out pensions to the point that I don't think any young person entering the workforce today even dreams of having one. To me, social security is there so that I don't have to spend more money taking care of others in the unfortunate event that their simple spreadsheets are wrong and they haven't saved enough money.

      But, in the bigger picture, the reality is that the majority of America does not want it ended. Why do we need to endlessly keep trying to fight that reality? Your comment here is actually very honest; which is to say it is where most of the right is, they wanted this program ended and everything they do is support of that goal.

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    2. Properly funded would suffice Max like any good insurance program should be.

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    3. That's easy to say, DI.

      I think more to Max's point is the question, are you willing to fund it based on the reality that most Americans want it?

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    4. William, as Funky says, the reality is that a majority of Americans do not want it ended. Why must we keep debating this point? To your point though, I agree, it should be funded and we can fund it. But we cannot fund it at current tax rates. It's not insolvent now and won't be for quite awhile. Admittedly, it is a ponzi scheme as all insurance is. The real solution would be to grow the economy rather then keep shrinking it and taking away jobs and there are multiple ways to do that.

      Regardless, the absolute first step has to be to decide if we are going to continue fighting the reality that America wants this program. If we accept that reality, we can begin finding solutions. If we are going to continue fighting to the death the philosophical underpinnings of it, it will continue to be a constant irritant to everyone.

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    5. The discussion needs to center not around what we want because we want everything as long as someone else pays for it. The discussion should be want vs. afford. If everyone is willing to belly up to the bar and pay in an additional money to fund SS, Forward.

      The change that needs to be made is funding, it isn't a savings plan, it's a pay as you go plan. The taxes should cover the payments today, no more, no less, that would prevent the morons in Washington from spending the surplus should it ever occur again.

      Somehow everyone needs to realize we cannot fund SS, medicare, medicaid, the Military and the PPACA without more taxes from everyone, not just the wealthy.

      And Max, there is no money in SS, just worthless TP. the cash long gone with a promise to pay up from the current taxpayers.

      Hope things are well.

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    6. Good to see your comments Lou, things are well here, hope the same for you. Your first and third para's there say it all. We can't have what we want at current tax rates. However, I would offer, I feel there is a push to not let the people have a choice to pay higher taxes for what they want. Instead, we are just being told "we can't afford it" and because of that, we should just end the programs.

      Me personally, I'm not a proponent to have the government offer the alleged cradle to grave safety nets. On the other hand, I don't like the idea that live free or die types will never contribute a dime to society but then come back later when their plans go bust. I would prefer to such more basic plans from the government that are more catastrophic protection but that everyone is forced to participate in. I think most everyone believes they don't need the government for anything.....until they do. At that point, they don't want to just quietly go away and die because they didn't properly prepare for some unseen event. More important, as a society, we don't want to see them do that. So, that's my point. If we can't accept that reality as a starting point, it significantly colors the discussion and what we can and can't afford.

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    7. Very well Max.
      Problem as always, no matter what we say to our representatives they assume this is what wen need, There is no conversation with our representatives, send them an e-mail, get a canned response back. Call them, they take a message or you get a recording.

      The PPACA is a prime example. Instead of a basic healthcare plan, we get the cadillac version which we cannot afford. Many that are not eligible for the subsidy will go without healthcare and opt out and pay the tax. Many employers will find it unaffordable opt out and pay the tax forcing many more into the exchange or no insurance. Government always has the best of intentions but it rarely works out that way.

      What the majority want, that to me is hilarious. The politicians are so concerned about the middle class that they step all over the minority to help the middle class. Wasn't government established to prevent the majority from crushing the minority? I refer to the wealthy. California's new tax on the wealthy, voted and approved by the poor and middle class a perfect example. The PPACA, the new taxes on the wealthy.

      What we can afford always seems to escape the real conversation, and that conversation isn't with us or at least they do not listen to us.

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    8. I can't really dispute your first para there, and I think that has had it's contribution to voters looking for candidates that are more ideologically pure. It's taken a long time to get here and the fixes will be more difficult. I don't see a majority rule in much of anything these days Lou. Not in the senate, not in our tax code and certainly not in how wealth is distributed. The pendulum swings back and forth. Respectfully, I simply do not agree a majority is crushing the minority at this time.

      The look of a politician, IMO, has changed drastically. Some are still motivated by a change the world mentality, most, IMO, are doing it because they are wealthy or because they have a benefactor who will pay for them to go and be a rubber stamp. Lobbyists control an enormous part of legislation and I don't think many people understand the mechanics of it. Everyone hates lobbyists, but I don't think people get how they accomplish their goals. Hence, we can't do much about it.

      You may ultimately be right about the PPACA, or not. I honestly don't have a strong belief right now that I know what will happen. We got a Democrat written bill because Republicans fought to block it entirely. What shaped Democrats was what Republicans were saying 25 years ago. I would much rather see a very basic plan with moderate co pays that would cover some basics and then catastrophics. This would leave plenty in the middle for insurance companies to create a market on. In our current political environment though, I honestly don't think this solution could have been possible. As an honest question, was there anyone presenting what you wanted or was it just all or none, Democrat/Republican?

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    9. I agree with your healthcare premise. Unfortunately the healthcare bill was crafted behind close doors without input from the R's. No effort was made for inclusion as Nancy had a super majority and marginalized the R's in the entire process. I see that as the starting point of the polarization in politics today. R' are still pretty pissed.

      Could the plan have been fixed? yes, however there was no political will on either side. Today, the Prez sees a major problem with his legacy, hence his push for higher taxes. I really don't think it will work as the cost is going to be off the scale. I don't think they anticipated the costs as high as they will be, employers dropping insurance, the states not willing to bail them out. Without the medicaid addition, it will be more costly on the federal level.

      This will not bode well if the costs are off the scale, getting a doctors visit difficult, surgery delayed and add in the new 30 million citizens to the healthcare plan and it isn't going to be pretty if half end up on medicaid rolls which they will. It is all becoming quite laughable.

      Another well intended plan in the toilet of politics.

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  3. Max, insurance properly funded is anything but a ponzi scheme. Sustainability relys on simple vesting.
    Demographics pointed long ago towards fewer children supporting the baby boom generation in retirement. It is predictable based on the fact that wealthier nations tend not to replace themselves.
    Social security was designed as a supplement, a buffer, not a retirement savings replacement.
    Like most things the entitlement deficients grow from inexorable government neglect. Programs can't grow to the skies. The only way to control inevitable collapse is to be ever vigilant in support of limited government.

    1773-2009

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    1. Morning William,

      A very reasonable comment. Technically, of course, insurance is not a ponzi. Functionally, there is much in common. Insurance companies, no matter how well they invest, need a constant stream of new members to help balance their risk pools. What is more accurate then calling it ponzi is risk management, or betting. On the healthcare side, I have seen nothing from insurance companies that has improved care or managed costs through improving outcomes. I'm not against insurance companies, but I accept their shortcomings.

      Your point about the demo's for SS is well taken. That is a big part of our problem. Still, we have also drastically reduced the level of participation that workers in have in distribution of profit. Rather then tax the rich more, I'd rather see workers pay more tax as a result of earning more money. If we leave aside philosophical points about what is fair distribution of profit, the demo's speak for themselves. If you are a worker who essentially makes less and less every year, what incentive do you have to have children other then religious or personal choice? Not only is money an issue, but I also think we have reached a point where people do actually think about the world they are bringing children into and decide not to. I can't say I blame them. When my parents had me in the late 60's, there was still a mentality that we needed to support a middle class. That is largely gone today.

      I like your last para. I can readily admit, there are programs that have grown out of control, including social programs. However, I believe they can be reformed, but only if we are willing to do so. My personal opinion is that we are not being given this option. Instead, we are only being given the choice for how deeply they will be cut. While I don't agree with the rhetoric of the Tea's, I get their point and in spirit can agree with some of what they are saying. At one time, those who are ever vigilant and heavily focused on size on government could compromise with those who more utilitarian minded and come up with decent solutions. Today, I believe we are essentially waging winner take all battles. Just my take.

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    2. Not only is money an issue, but I also think we have reached a point where people do actually think about the world they are bringing children into and decide not to. I can't say I blame them.

      That was my choice, I chose to adopt instead of another person in a broken world. Seems the entire world is my way or the highway from our politics to extremism in the world.

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    3. A very admirable choice, a lot of kids need homes. Instead of being a parent, I just chose becoming a liberal so that I could take care of everybody. Just kidding. The extremism concerns me as well. Frustration and ignorance breeds it, trust and flexibility seems to be part of the solution, but understandably, nobody wants to blink first.

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    4. Max, you continue to promote compromise. Except for the very short term meeting of the Gingrich-Clinton minds the needle has been rising for the past 100 years. The Tea's, which happen to be a good portion of the "paying" class, have watched for decades while the DC nobility has ever expanded every program. Escalator clauses (RE: Base line budgeting) exists nowhere in the real world expect within the halls of our Capitol.

      Layer upon layer of waste and largess pile up delivering out year devastation for future generations, and through inflation devastation for our current fixed income folks.

      The sequestration was a compromise driven by a lack of past executive and legislative branch, both parties, will and guts. Their aim was, as always, re-election. They accomplished that. Their aim's and our needs as a population do not match up, haven't matched up for decades, and won't be sustained if they punt again.

      This is the GOP's last chance. The DEM's have been a lost cause for a long long time. If sequestration is washed out by further lame excuses for fiscal policy the Tea's are ready to pull out.

      You may have noticed, if you were paying attention that BOTH responses to the President's SOTU speech were made by Tea Party backed Senators. The days of McConnell Boehner type GOP control are numbered.

      1773-2009

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    5. Again, that's a comment that I don't sharply disagree with. To your last para, I'm still in wait and see mode. Rand Paul, to me, is starting to look at lot like US Senator Obama in his first term. I don't doubt Paul believes what he says, but he sounds very calculating to me. At the moment, the Tea Party is giving entrenched Republicans something to think about, which is not a bad thing in my opinion. But,I consider myself utilitarian. I believe there is room for individual freedom and individual reward within a context of maintaining a society that gives everyone access to the kinds of tools that help them get ahead. This is not utopia thinking.

      You are correct in that many layers have been built up, wasteful, ineffective layers at that. What happened on Clinton's watch was not a bad start to dismantling some of the entrenched welfare. But it was bigger then that. There was also an agreement we would pay our bills and there was pay/go and taxes were raised to stop the red ink. Goofy as Al Gore is, his effort at reducing waste WAS sincere. But, after Bush won, it wasn't enough to just take a different direction. It was more like a rebuke of anything Democrat was undertaken.

      I'm willing to be corrected on this William, but I believe that the Tea Party, as part of a philosophy of limited government, is not interested in more effective government. They just want less of it across the board and believe it can just be cut indiscriminately without any consequence. To them anyway. Yes, I am still for compromise. It works well in my marriage, it works well in my friendships. I don't see why it is seen as evil in government.

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  4. Why wouldn't any same person be for effective government? Limited doesn't mean stupid, it means limited. Requesting, demanding, cuts of less than one percent of base lined budgets are anything but unreasonable.

    Doesn't anyone on the left see what one trillion dollar a year deficits will result in?

    Keep in mind Max that president Obama is not on the ticket in 2014. Dems and Pubs will have to run on their own voting records. Both sides will be primaried to death. Lot's of dead wood will be stacked by the side of the road. There is a good chance that gridlock will be Obama's legacy.

    It's a matter of time before the McCains and McConnels are replaced by more conservative thinkers in that chamber. In a nutshell, it won't be easy for the left to further expand and spend.

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    1. "It's a matter of time before the McCains and McConnels are replaced by more conservative thinkers in that chamber. In a nutshell, it won't be easy for the left to further expand and spend."

      Time will tell I guess. Likely, we will just sit through endless soundbites quoting long dead people. It's all seemed kinda hollow to me lately. Once in awhile, the events unfolding produce a real leader and that's all I hope for right now. Right now, none of the politicians who are auditioning convince me they have leadership. I'll cast my vote and move on like I do every four years.

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    2. I know that you think the DNA of people living today is superior to those that came before. I don't share this opinion. Timeless thought trumps shallow progressive experiments. Great thinking rarely appears and must be honored. Just because something is new, is a fad, is stylish, is current, doesn't make it better.

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    3. A leader in Washington, kind of an oxymoron isn't it?

      I would suggest that the country will face a sever financial crisis in the next 4 years. A president will be elected and face an insurmountable challenge. Likely fail and be replaced after 4 years. May become a new trend the revolving door of the WH.

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    4. My comments William, always seem to encourage you to imagine the most extreme example possible and conclude this is my intent. I waste a lot of my time and yours trying to convince you that I truly believe in a middle path, I should probably stop as I am not succeeding.

      This is from Ayn Rand regarding the Serenity Prayer,
      "Unable to determine what they can or cannot change, some men attempt to "rewrite reality", i.e., to alter the nature of the metaphysically given. Some dream of a universe in which man experiences nothing but happiness-no pain, no frustration, no illness- and wonder why they lose the desire to improve their life on earth. Some feel that they would be brave, honest, ambitious in a world where everyone automatically shared these virtues- but not in the world as it is. Some dread the thought of eventual death-and never undertake the task of living."

      Something I took from reading Rand, as well as other philosophers, is that we must live in the world that exists now. Not the world of the past which we envision as somehow perfect, and not some future world that we believe will exist as soon as we sweep away the dead wood ruining our reality now. I'm not remotely dumping on the wisdom of great men and women who came before. What I am dumping on are empty suits who endlessly quote those words and call it leadership.

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    5. But some truths are self evident Max and worth repeating. The reminders to those generations whose minds have been conditioned since Wilson need to be ongoing.

      Great ideas and words are few and far between. Building on great thoughts of the past requires a working knowledge of those truths.

      Sadly our current educational structure does not provide this knowledge by design. This includes the early grades, right on through what some call higher education.

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    6. Max,

      "Something I took from reading Rand, as well as other philosophers, is that we must live in the world that exists now. Not the world of the past which we envision as somehow perfect, and not some future world that we believe will exist as soon as we sweep away the dead wood ruining our reality now."

      Wow. Profound. I'm touched. No sarcasm.

      Jean

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    7. This has become circular.

      Have a good day.

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  5. Good points from everyone, good thread. It's been awhile ...

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    1. Compliments will get you everywhere plunky.

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    2. Lol ... thanks DI.

      This is a conversation that needs to be had. It needs to be rational, deliberate, and sans name-calling.

      I tend to agree with Max's main point - the reality is that SS, Medicare, etc aren't going anywhere. Government should be better, not just hacked in half. Let's discuss what we need to do to make these programs viable.

      SS should've been fine. Unfortunately it's been raided by various Congresses over the years to fund other stuff. Maybe the 1st step is to make doing that illegal? Means testing? Bump in retirement age? Raise taxes? Cut payouts? It's all gotta be on the table.

      I tend to scapegoat the Baby Boomers. As they age, these programs are gonna get more expensive.

      I was watching Bill Maher a couple of weeks ago who threw out an interesting number: We, as a nation, spend $4 on every American over 65 vs $1 on every American under 18. Idk if that's true or not, but it sounds about right (people under 18 don't vote). Is that really the way we should do it? Is that what's best for the future of our country? These are also questions that merit serious consideration in this discussion.

      We as a nation have to decide what kind of people we want to be. What's important to us and what we should or shouldn't fund. It requires thoughtful deliberation.

      Threads like these give me some hope.

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    4. I tend to scapegoat the Baby Boomers. As they age, these programs are gonna get more expensive.

      Interesting as the boomers have been funding the largess of the government for the last 40 years with their contributions to SS and all that money replaced with bonds and a promise to repay them from the taxpayer.

      Raise the age probably a good idea. Raise contributions will definitely affect employment as the employer matches the contribution. Same applies if you raise the cap. Cut payouts will certainly affect the grasshoppers in the 62.5 bracket vs the ants in that bracket.

      As far as the payouts, reasonable as the 65+ get SS and the 18 years old's do not.

      Medicare is the issue that will slam us first as the population ages. The IPA is sure to have an effect as they cut 70 billion a year from medicare.

      We certainly have worked our way into an unenviable position in this country. With the new debt from the PPACA starting next year should be a fun year of finger pointing.

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    5. Good morning, Lou! :-)

      My use of the term "scapegoat" was my tepid admittance that perhaps I was being a bit unfair.

      I do think, however, that the Boomers as a whole were the first large group of folks that bought into Reagan's Supply-Side Moonieism lock, stock, and barrel. They still worship at the temple of Voodoo Econimics today, despite 30+ years of evidence that Supply-Side theory as economic policy is a total bust. Maybe it made more sense during Reagan's time when the top tax rate was 50%+, but if you look at it impartially over the past two generations, you have to conclude that Supply-Side is total fantasy. It's become a religion - it's like believing in the tooth fairy.

      What's funny is that today, many of the Supply-Siders are howling about our crushing national debt while refusing to acknowledge that it was their economic policies that got us here in the first place. This is what happens when you govern by Faith over Facts.

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    6. The interesting thing neither Keynesian nor supply side economics work. Why, we have a global economy. when the government spends money the money travels overseas with purchased imports, same for citizens. Neither can sustaining the multiple effect of spending when the cash is shipped overseas.

      As far as the debt at least the last 6.5 trillion wasn't a supply side spendfest but a Keynesian spend fest.

      Alas the problem remains, how to deal with 16.5 trillion in debt. Cut spending, balance the budget resulting in less government spending sure to send us into a recession.

      Continue spending at this level? 16.5 trillion interest is quite manageable today thanks to Ben and Operation twist lowering the long term interest rates. Imagione 16 trillion at 5% interest, 800 billion in interest a year, not to mention 800 billion for SS and 800 billion for Medicare and Medicaid. Pretty much consumes all taxes. The end result will most likely be a recession.

      Neither will get us to where we need to be and now we have that nifty PPACA about to kick in generating more debt. Not to mention all the new taxes just passed and the new PPACA taxes. Sure to spin us into recession.

      The Fed will be able to little this time as they are pretty much tapped out on solutions. Guess at this point we will probably endure a long recession, this time with out 99 weeks of US, food stamps, as we are pretty much broke.

      In any case, the current administration is in total denial as to our debt problem and congress is hopelessly dead locked. Next few years are going to be difficult for many.

      Perhaps something mysterious will happen and kick the economy into high gear which will generate more taxable income. We can only hope. It has been a great ride.

      Hope you have been well,

      Lou


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    7. Plunky, let's just say,

      Natural gas is selling for about one quarter of what it was a few years ago. Why you ask? Did the government mandate the lower price? Did the Fed print "free gas credits" and send them out? Did Obama lower the price by decree?

      Well no, we open our minds and realize that the price was reduced due to an increase in SUPPLY. Fracking technology enabled sources to be targeted and extracted. SUPPLY lowered prices. Period.

      Let's put it terms that Bill Maher might even understand. Let's bring it down to the most elemental of levels. Let's bring the argument down to life or death.

      A fetus survives the abortion mentality and actually is fortunate enough to arrive safely into this world. The cord is cut, the doctor places the baby into the arms of his mother,,,the blessed child screams announcing his place in the world,,,

      ,,,the nipple is not offered,,,despite the baby's protestations he is not
      nourished,,, the baby demands to be fed,,,entitled to sustainence he screams out even louder,,,

      ,,,the nipple is not offered,,,

      ,,,the baby demands,,,

      ,,,the nipple is not offered,,,

      There is no SUPPLY,,,the nipple is never offered,,,demand never guarantees SUPPLY.

      Maybe Bill Maher can offer his nipple.

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    8. Lou and Funky,

      Supply side and Keynesian are really the same thing, at least under Reagan they were. In supply side, the promise is that if we tax the wealthy less and let them build up wealth, they will chomp at the bit to invest that money and create jobs. Under Keynesian, the promise is that if the government "invests" in creating jobs then THAT will create the sustained multiplier effect. Where I believe that staunch proponents of either philosophy has it wrong is that they believe it is a solution that works at every stop on a continuum. As you said Funky, when taxes are where they were when Reagan started, supply side is a compelling argument. When we've crashed taxes to a 60 odd year low and see piles of money climbing for one small segment of the population while the rest sucks it, it's time to try something different. Pure Keynesian thought, however, is not the answer at this time either.

      I have come to believe that imbalance is what makes the world work. IE, if your hard work does not give you a reward that let's you live better then those who don't choose to work hard, there is no point in working hard. Conversely, if you do work hard and don't get ahead because you are not the most able, most conniving or most connected, you are also disincentivized. I believe we are much closer to the latter today.

      While imbalance makes the world work, I believe that properly managing the imbalance is what makes it thrive. Basically, I think a better focus would be to punish excess. When the economy is growing, that is the time to start cutting back social programs. When the economy is shit and taxes on the wealthy are letting the stockpile wealth to invest overseas, it's time to raise taxes on them and build schools, bridges and hospitals. That the basic gist and it's not that simple. but, I have to go to work.

      William, please pull your shirt down, we've seen your nipples.

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    9. we've crashed taxes to a 60 odd year low and see piles of money climbing for one small segment of the population while the rest sucks it

      Do you honestly think that the low taxes is the reason for the redistribution of wealth? Government taking more money from those that make more is a reward for giving 110%.

      Quantitative easing is the Federal Reserve printing money and creating inflation. This quantitative easing steals from the purchasing power of the incomes and savings of all Americans. While Americans are distracted by the mainstream media with daily debates by the Democrats and Republicans about taxes, U.S. taxes have almost no where near the effect on the lives of middle class Americans as does the Federal Reserve's monetary policy and quantitative easing.
      Inflation, the silent tax. The poor remain poor, the middle class struggles to maintain status quo and the rich do what they always do, invest and make money.

      Oh that's right, there is no inflation so says the government, but then again they do not measure food or energy as they are to volatile.

      Sorry, but what we need is smaller government. They have disincentivized me to a point where I paid 50K in 2011 in federal income tax, 2012 I have cut it back to 12K and next year, I will strive to bring it to under 5K. Take from someone else, I don't want to play anumore. Many would say, someone else will do that work and make that money, probably not, specialized field and filled the gaps in companies I did business with.

      When the government spends trillions more than they take in in taxes, the system is broken.

      p.s. Roads, bridges, hospitals are local, state responsibilities, why should the Federal Government tax, take a cut for the fat cats and send it back to the states?

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    10. Max, how do you square borrowing over forty cents of every dollar spent by our government as not being generational theft? Don't bother you can't. Better to spend your time preaching to plunky about your managed centralized economy. Tolitarians clicking their heels on and off magically building bridges out of whole cloth to artificially support demographic and cyclical downturns.

      Reagan's supply side initiatives have reduced interest rates from 17% downwards to virtually zero over thirty years. Interest rates for those prudent ones among us present once in a lifetime investment opportunities. That is if you actually believe in investment. That is if it's not to capitalistic for your pink tongue.

      As for the 16.4T hippo in the room. How do you think that animal will be restrained once interest rates return to historical norms?
      Hummm?

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    11. William,

      The fed is responsible for taking rates from 17% to zero. Marginally, de regulation has allowed banks to completely screw the depositor and deny them any right to participate in the market through their savings, so I guess you could thank Reagan for that.

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    12. Without the Reagan revolution the Fed would have been playing with themselves. Much as they are today.

      BTW Max, your attempts at Reagan revisionism are quite frankly pathetic.

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  6. Lol ... Thanks for making my point DI.

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    1. plunky, I'm glad I get to chat with you. That you weren't one of over 50 million babies that were pulled thru the tube. I'm even glad that Bill Maher survived and has the opportunity to make an ass out of himself nitely.

      Pleading guilty as a proponent of life. A zealot for diversity. A SUPPLIER of balance in gimmie gimmie gimmie pc society.

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    2. Holy Red Herring, DI!!!

      I'm not really sure what abortion has to do with this discussion but I admire your unwavering determination to wrench the thread toward your favorite topic yet again. Do they teach you how to do that in TEA Party Debating School?

      I'm glad I get to chat with you too, William. Seriously. But I'm gonna have to plead guilty as a proponent of staying on topic ...

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    3. I did notice you dodged my natural gas - supply side argument above. What say you?

      Our Tea Party debating coach only raises one solitary argument,,,limited government. Abortion only lends itself to the argument when one views the low percentage of babies being produced by American white women.

      You white girls are not keeping up with our SUPPLY needs!

      Get on the ball! Or whatever.

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    4. DI -

      I was referring to an economic theory commonly referred to as "Supply-Side".

      What you were describing with your natural gas trope is a core component of most economic theories called "Supply and Demand". While both topics contain the word "Supply", they are, in fact, very different things.

      I didn't say anything 'cuz, honestly, I thought Max or Lou would jump all over you for it ...

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    5. plunky, I stand corrected.

      So I suppose you believe the "moonie" supporters of supply-side are still deranged. Please explain your demand-side postulate for my entertainment.

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    6. DI-

      There you go with your binary thinking again: "If you're not saying 'black', you must be saying 'white'."

      The truth is, I don't have a simple answer 'cuz I don't think there is one.

      What I do know is that if you pound your head with a hammer once and you get a concussion, you don't keep pounding your head with that hammer over a long period of time and expect any different outcome other than multiple concussions. That's what we've been doing with Supply-Side since the Reagan days - at least until Dubya & Barama threw in some Keynesian on us.

      I do think infrastructure projects are key to any long-term recovery. They provide jobs in the short term and stimulate economic growth over the long haul. Take Max's home town of Las Vegas as an example. I would submit to you that Vegas would be nothing more than a truck stop at a crossroads if it weren't for massive infrastructure projects like Hoover Dam, the interstate highway system, and an international airport.

      Because of these huge infrastructure projects, this truck stop in the middle of the desert has become one of the biggest and most popular adult playgrounds in the world, probably generating over a hundred billion dollars gross annually for the economy.

      The problem with infrastructure is that it costs a lot up front and it's benefits may not be realized for many years - it's a tough sell politically.

      Reworking our Monetary & Trade policies are also key to our long-term financial health - but that ain't gonna happen as long as our politicians are owned by those who benefit from our current policies.

      As far as "Demand" goes, well I'm not that well-versed in macro-economics. I do know that "Demand" is what creates private-sector jobs. Period. If somebody wants the iPhone 26S, they're gonna wait in line to buy it regardless of their marginal tax rates. I have no idea how to artificially stimulate private sector demand or if it can even really be done.

      So DI, I admit, I'm not smart enough to provide the simple silver-bullet answer you seem to be seeking. I'm also, however, not stupid enough to keep sticking my finger into the electrical outlet and not expect to get shocked.

      We tried Supply-Side. It failed. Let's try something else.

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    7. You have to ask your self, where does the State governments responsibility end and the Federal Governments responsibility begin. Should the Federal Government rebuild the interstate system? It's well managed at the state level today. Replace a bridge or two? State responsibility. What kind of infrastructure project would warrant the Federal Government taking tax dollars, taking a cut of the money and sending the rest back to the states? Seems outright stupid to take and return the same money minus a commission doesn't it?

      Denver International airport was largely built with bonds issued at the local level. The light rail system as inadequate as it is is being financed by local tax dollars. Eons ago infrastructure was financed by the Federal Government. Today, it so inefficient that it makes zero sense.

      Rework the trade policies? How about fair trade. Import as much as you export zero sum game. Import more, tariffs kick in. Free trade works well for out trading partners, not so well for us.

      Stimulating demand is difficult at best, government intervention via taxation, regulation skews the way the world works. People, business are uncomfortable with laws and regulations, the economy, they wait for better days to spend. Kind of like now, spending down, lots of nifty new regulations, new healthcare laws, talk of new taxes, no wonder business and people are a bit unsure.

      p.s. We've tried Keynesian for 12 straight years and what have we gained? 12 trillion in debt? How's that working out for you?

      It's late and the rant is complete.

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    8. Oh, there was plenty of Supply-Side during the last 12 years too, Lou.

      The the reasoning behind the Bush tax cuts of '01 and '02 was pure Supply-Side theory. BTW, we were running budget surpluses for two years, right up until that cut in '01 took effect. Heck, 35% of Obama's "Keynesian" Stimulus Package was tax cuts - also Supply-Side theory.

      If you read my previous response, you'd note that most is in agreement with your rant.

      As I stated before, I don't have the answers.

      My only point to DI was to argue that we not keep swallowing the same 35 year-old snake-oil that made sick in the first place while holding onto this quasi-religious belief that it'll heal us this time around. That goes for the Keynesian elixir too ...

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    9. Yes there was a slight surplus, take out the SS surplus it was break even, having said that, right up to the tech bubble being popped. Oh and yes of course that 9/11 thing. Would the fiscal cliff agreement be an example of supply side as the low income tax rate are now locked in, however taxes were raised at least until we have a new government.

      Tax cuts, yes it did stimulate the economy, just like any government program they never seem to go away. The one I like best is we still fund Radio Free Europe. We still have a base in England protecting that country as well as Germany. Our lust for nation building continues.

      Having said that, until people begin to vote what's best for the country instead of who's promising the most, we will continue down this road of destruction. The Dem's obviously don't have the answers as proven in the last 4 years. The Repub's certainly don't as they proved incapable of providing a leader. The Tea Party doesn't have the answers either.

      Probably getting close to the time for a new party to be formed, one with out the baggage, a party of the people, a party with out the ties to labor, business or the monied interests, Buffet and his billionaire crowd.

      Never going to happen.

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    10. pfunky, I appreciate your honest responses, I really do. Your deference to "big government" programs is understood. Placing massive infrastructure smack in the middle of a desert so people can come out, set up shop, and gamble seems a stretch. The creation of a dam to provide water to a sustainable economic area makes more sense to me frankly.

      As you have totally discounted supply-side theory, and aren't sure about demand-side solutions what other roads are you following?

      There are of course a few ideologies available. Since we've thrown the King out a couple of hundred years ago it would be a bit disingenuous to form a monarchy. The Kennedy and Obama families excepted of course.

      Communism didn't seem to work so well for the USSR, and Cuba is finally going to see the end of the Castro commie pigs in a few years. Hugo (empty shelves) Chavez seems on his last legs also. I guess you could support the the Chinese hybrid if you like having about a billion people barely living on a dollar or so a day.

      Keiretsu looked solid for a bit until it became totally inbred. Look under "Lost decade (two decades actually)" under Japan in Wiki.

      The darn EURO'S have really f__ up that Socialism deal haven't they. But I guess thirty hour work weeks are pretty attractive unless you're a younger person losing an entire generation of earning power. Lot's of attractive and cheap travel deals to Greece and Italy though.

      Soooo,,,,,where does that leave us? Demanding an egg from a rooster doesn't seem to work. Stimulating a rooster to knock up a hen to get that egg with incentives might work in the short run. It's a lot less expensive, natural, and fun to let the rooster do his thing without the revenuer middle men. No silver bullet, just natural law.

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    11. "Placing massive infrastructure smack in the middle of a desert so people can come out, set up shop, and gamble seems a stretch. "

      Are we talking about Israel or Vegas?

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    12. Vegas was only the most obvious example I could think of.

      The fact of the matter is there many former one-stoplight little towns that have grown significant commerce centers over the last 70 years simply because we built an exit ramp from an interstate highway to them. Martinsville VA, Sandusky OH, Parkersburg WVA, etc ... there are literally thousands of examples sprinkled all over the country.

      Entrepreneurs are gonna set up shop where's they're gonna get business - whatever kind of business, it doesn't have to be gambling. They're gonna get business where's there's infrastructure.

      This seems like A to B to C logic to me. It's also seems to me to be one of the true ways to stimulate long term private sector economic growth.

      I don't think you can artificially stimulate private sector demand in the short-term unless you create some kind of fake shortage.

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    13. Private sector lives and dies with taxation, regulation. The more you have the less investment you get.

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    14. Searchlight was a joke, 12 people and 1 gambling establishment in the middle of nowhere.

      Wonder what they all do for a living.

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    15. "Private sector lives and dies with taxation, regulation. The more you have the less investment you get."

      Here is a perfect example of why supply fails. In theory, if this is true at every plot along a graph, then if we removed all regulation, there would seemingly be endless investment and growth. The reality is that when we did this, see S&L, repeal of Glass/Steagall and the housing fiasco, all we had was a quick boom bust and fleecing of the population. In general, you have a point Lou. Regulations CAN be excessive to the point of killing growth. Taxes CAN be excessive to the point of killing motivation. But, instead of looking for a balance, we are having all or nothing discussions.

      Government investment is not the answer to every problem. That said, as Funky mentioned, we have countless examples of government investment that has spurred private investment and a resultant boom. In my opinion, a pure free market wants to find the cheapest and easiest way to make money. If given a choice between investing and risking on something new versus continuing to just keep squeezing margins on a product that is already making money, the market tends to choose the latter. When given the choice between self sufficiency and cheap shit from China, we chose the latter.

      This is a very long winded way of saying we don't have rational discussions in this country about what we want versus how much we want to pay. To your previous point about leaving it up to states to build bridges and what not, I feel it is in the best interest of the entire country to have an interstate system and safe bridges. Should we let states devolve into shitholes because they don't want to raise enough tax to pay for upkeep? The Libertarian answer is yes we should. Me, I'd prefer to have a relative level of safety and reasonable amount of roads to drive on no matter what state I drive in.

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    16. And yes, you can take anything to an extreme.

      Unnecessary regulation is a burden on business, ask me, I can attest to that.

      Taxing a business is the stupidest idea every out of government. It results in increased prices to the consumer. No business absorbs taxes as a freebie. The results of higher taxes on business, reduced expense (people) off shoring or in my case business closure.

      It would make far more sense to relieve the tax burden on business and spur growth. Imagine if they let Apple bring all overseas money home, dividends to the stock and bond holders, possibly raises to workers.

      Imagine if you actually used taxation to encourage business to do manufacturing in the US. But no, we would rather take the tax the evil corporation route. They would not need subsidies if they were not taxed at the level they are today.

      And no, we cannot have a real conversation in this country until the evil demons are exorcised from Washington, Reid, Boehner, Pelosi, McConnell and of course Obama.

      When the divisive leaders leave then perhaps we can get back to government as it was meant to be.
      p.s. There is no U.S. Department of Transportation taking care of the interstates, it's the State DOT's with our tax dollars transferred back to the state that does that work.

      In most cases, Interstate highways and their rights of way are owned by the state in which they were built. Maintenance is generally the responsibility of the state department of transportation. However, there are some segments of Interstate owned and maintained by local authorities.

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  7. Lou,

    You've kind of answered your own question on taxes. If you feel like you want to earn less to pay less, think about how the wealthy felt at 70% taxes. The wealthy have an enormous say in how income is distributed. They run the corporations, the banks and the government and in part, I do believe the drop in taxes has had an impact in the upward climb of wealth.

    Now, there is no denying that our horrible trade deals with China have also contributed to this. However, as the jobs went overseas to unregulated job markets where people make shit and eat shit, so also did the investment money of the wealthy. it is true that any 401 K plan will have money in that pot as well. But it's a matter of scale.

    When there was a tax amnesty, which many are calling for again, the money simply came back and was used to swell balance sheets and buy back stock. Your point is not lost on me Lou and if I made a six figure income, I would scream too. On the flip side, I reject an argument that all those getting crushed today and getting crushed because they are lazy or stupid. The money that used to circulate in the economy and help is stay healthy has largely been siphoned out and it is now sitting in piles collecting dust, or it is being invested elsewhere in the world to further help our country de industrialize. No matter how it is done, money needs to be invested here and workers need to make more to spend more. Until this happens, everything else is moot.

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    1. The wealthy in California are close to you 70%. Think that's a great deal for them? Here's a neat idea, cut the size of government. Start small and get rid of useless programs that hang on forever. Radio Free Europe comes to mind. So we really need multiple departments for mortgages,welfare, purchasing? The military comes to mind, if you don't spend it this year it's reduced next year. Do we really need over 1000 bases over the world? Still need a base in England to protect the English. I would love to be the person that downsized the government, so much to work with.

      Yes it's Reagan's fault as well as Bush's fault the Fed has held interest rates at near zero percent. Has nothing to do with thew 16.5 trillion in debt that would cost us 660 billion at 4%, think we can pay that interest? Maybe, just maybe Obama as well as every president and congress share some responsibility not to mention the people who put them there.

      By the way 401K's and IRA's topped 19 trillion this year, far than the big boys out there. Until people go back to work, regardless of how much they make. it will remain the same, higher taxes and regulation play a big part in that as well as the upcoming PPACA. Personally I wouldn't bring a business back to the US until all the dust settles and the true costs can be assessed.

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    2. Paul Ryan is perhaps one of the best examples of why we can't cut those programs. Though he voted against more spending, he had no problem whatsoever in applying to get it to come to his state. I know some people who have done some government contracts and the told about the blatant rip offs that occur because the government doesn't hire the kind of people who could spot the bullshit from a mile away and put and end to it. Also, cuts in spending means cuts in jobs in local economies and if allocated money is not spent, departments get their budgets cut. You know all this already.

      The only reason I mention it is because I try to be realistic about it. To accept why spending is out of control is not the same thing is loving out of control spending or advocating for it. While I honestly respect the voices who want to see spending reduced by 5 trillion a year, I see too many elected officials of all stripes who will lose money coming home. I believe that's why the sequestration solution became reality; nobody has to take responsibility when the cuts come.

      I would like to see spending go down too, but I don't believe the frontal assault is going to work. If true dealmaking started where programs like radio free Europe get cut but we keep something else, that stands a better chance. Instead of continuing to spend so much on military, which will be fought by every elected official who stands to lose jobs because it, why not make less bombs and build something else? at least if people are employed, we can grow the tax base and put more money into the economy. Yeah, that's Keynesian, but we aren't going to legislate that away.

      last thought, I don't have to like the way things are done to accept the reality that I won't likely change that. Instead of fighting a system in a way that isn't going to win except by the most draconian means, why not refocus it?

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